Water Quality Bill Marred by High Costs and Davis-Bacon Handouts

The Water Quality Financing Act (WQFA, H.R. 720) of 2007,
recently passed by the House, strikes a double blow against
taxpayers. First, it would give more subsidized loans to local
governments to build sewage treatment plants and require them to
apply Davis-Bacon wage provisions to all such projects. Davis-Bacon
wages shield unions from competition and thus raise costs to
taxpayers. Forcing communities to pay Davis-Bacon rates would make
it more difficult for local governments to build new water
treatment facilities. Second, the Act would authorize $14 billion
in new spending over the next four years, piling up more debt as
America faces a looming entitlement crisis. For taxpayers' sake,
Congress should remove these provisions.

Current System

The Clean Water Act created the Clean State Water Revolving Fund
to finance the construction of municipal water treatment
infrastructure. Both the federal and state governments initially
put billions of dollars into the fund. Local governments borrow
from the fund at subsidized interest rates to build water treatment
facilities. Local governments repay the loans with interest, and
this provides the money for future loans. The Water Quality
Financing Act, recently passed by the House, would add billions of
dollars to the state revolving fund and require that any project
built with loans from the fund pay Davis-Bacon wages.

Davis-Bacon Limits Competition

Congress passed the Davis-Bacon Act in 1931 to protect unionized
northern white construction workers from competition from nonunion
southern blacks who were moving north to work on construction
projects.[1] It
serves a similar purpose today, shielding unionized construction
firms from nonunion competition. Davis-Bacon requires any federal
construction project to pay workers a federally defined "prevailing
wage." The prevailing wage usually amounts to the union wage, which
is often well above the market rate. This requirement means that
union members can charge above-market wages on federal projects
without losing bids to nonunion firms because the nonunion firms
must pay inflated union wages.

Unsurprisingly, organized labor strongly supports the
Davis-Bacon Act because it protects union members from competition
and requires the government to pay their above-market wages. Table
1 shows Davis-Bacon wages and average market wages in several U.S.
cities.Davis-Bacon rates are typically 15 to 40 percent higher than
market wages and, in some cases, are more than double the
competitive wage.

Taxpayers ultimately foot the bill for these inflated wages.
Limiting competition means the government pays more for
construction projects. The Government Accountability Office found
that Davis-Bacon increases federal contractors' costs by over a
billion dollars per year.[2]

Expansion of a Special-Interest
Handout

The Water Quality Financing Act requires any local government
that borrows from the state revolving fund to pay artificially
inflated Davis-Bacon wages. This massively expands the reach of the
Davis-Bacon Act. Currently Davis-Bacon applies only to federally
funded construction projects. State and local governments, however,
contribute to the state revolving fund. Thus water treatment
projects funded entirely with state and local contributions would
face Davis-Bacon restrictions.

This would represent a massive expansion of a special-interest
handout to union members at the direct expense of local taxpayers.
Union members would enjoy higher wages than they could earn if the
government allowed competition, but taxpayers would have to pay
higher taxes to cover both increased project expenses and increased
interest payments on larger loans. This would probably come in the
form of higher property taxes.

Redistributing wealth to union members does not bother organized
labor, but policymakers should avoid this special interest handout.
Union members already earn above average wages. As a matter of
fairness, the government should not make all taxpayers, including
those with below average earnings, pay higher taxes to protect
relatively wealthy union members from competition.

Less Investment in Clean Water

Perversely, the WQFA would reduce local investments in clean
water because it would increase the cost for local governments to
invest in new water treatment infrastructure. The bill provides
more money for loans to the state revolving fund but would make
every project substantially more expensive for local governments.
Many communities could find that they cannot afford building a
treatment plant at Davis-Bacon rates.

The bill would hit small communities especially hard because of
the economies of scale in water treatment. It costs more per person
to clean the sewage of a 1,000-person town than the sewage of a big
city. Small towns also typically have smaller and less diversified
tax bases. On a per-person basis, small towns would see the
greatest increase in costs from the Davis-Bacon requirements and
have the least ability to pay for them.

Unaffordable Spending Spree

The WQFA also increases federal spending at a time of tight
budgets. Federal spending has soared in recent years, and taxpayers
cannot afford still more. Since 2001, federal spending has risen 23
percent after inflation, and the government now spends $23,300 per
household.[3]
The WQFA would authorize $14 billion in new spending between 2008
and 2011, a 250 percent increase above current spending levels.[4] With the baby
boomers about to retire and to begin collecting both Social
Security and Medicare, this expenditure would be irresponsible.

Conclusion

Congress is justifiably concerned about water quality, but the
Water Quality Financing Act needs significant reform. The Act hits
taxpayers twice. It authorizes a tripling of the amount put into
the state revolving fund and extends Davis-Bacon limits on
competition to all projects built with loans from the fund. This
special-interest handout would redistribute income from taxpayers
to unionized construction workers, while making it more expensive
for communities to build new water treatment plants. Unions
understandably support laws that block other workers from competing
with them, but that does not make blocking competition good public
policy.

James
Sherk is Bradley Fellow in Labor Policy in the Center for Data
Analysis at The Heritage Foundation.

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